Bank error in charging interest.

B

bsci

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In May of this year my parents' mortgage provider issued a letter saying that due to an error on their (the bank's) behalf in calculating the interest on a certain portion of the mortgage over a number of years my parents now owe an additional €29,000 approx. My father was supposed to sort out with them what was going to happen but it now turns out that he didn't so my mother is trying to deal with them.

The two solutions offered by the bank so far are
1. Pay the extra €29,000 up front
2. Take an interest free loan for the amount and pay it off gradually

Neither of these are currently feasible for my parents, with pay cuts and other financial issues they are barely keeping their heads above water so there is no way they can afford an additional payment every month - with or without interest!!

I know my mother is trying to get them to reduced the extra lump sum owed so that they'd have some hope of being able to make regular payments but naturally the bank aren't jumping at that option.

I suppose I'm wondering if anyone has any advice I can pass on to my mother. Or if anyone has ever found themselves in a situation like this with a mortgage lender/bank? If you did what was the outcome?
 
I would ask the bank for an extremely detailed break down of every year of the mortgage, what capital was paid, what interest was paid and what was the interest that should have been paid (according to them). I would also ask the bank (in writing) for an explanation in writing as to how/why this occurred.
I would get your parents to get together all documents and letters that were sent to them by the bank in relation to the mortgage including notice of interest rate changes and they can cross reference this to the detailed account from the bank.

Financial ombudsman could be contacted also. And I would also consider contacting a solicitor pending getting more info from the bank.
 
Hi bsci

Which bank was it?

I assume your parents were not aware of the error? If they were they should pay it back.

How many years? I would feel that your parents are morally and legally obliged to pay interest due to a recent error or pay the recent interest.
If the error is a very old one, I think that morally, your parents are not obliged to pay the interest, or the old interest. They may be statute barred from collecting the interest over 6 years.

Agree generally with ted. You do need to get a full explanation of how it happened and how the additional amount is calculated.

When you get that, I would offer to pay them the interest for the last 6 years and they have to write off the balance. They can effectively have the 6 years' interest up front by your parents agreeing to increase the loan balance by that amount.

I don't agree with seeing a solicitor at this stage. If you can't reach agreement with the lender, then you will go to the Ombudsman and a solicitor is unnecessary for that. I have seen such cases go to solicitors and some of them seem not to have heard of the Ombudsman.

Brendan
 
Hi, bsci.
A number of things arise here. I would like to have more detail on the nature of the error and the circumstances in which your parents were notified.

There is no obligation on the part of a borrower to check the calculations of interest on a mortgage. The borrower is entitled to expect that the lender has the skill and capability to do the calculations accurately and apply the interest correctly. And if the borrower, having relied on these calculations, has adjusted his/her spending pattern and spent the money involved, the borrower has a good case for refusing to pay the amount of miscalculations up to the date on which the error came to his notice.
I'm assuming that your parents were not aware of the error until so notified by the bank.
The legal obligation on your parents is therefore somewhat open to question.
The moral obligation is your own business.
I agree with Brendan's view on solicitors and the Ombudsman, and would just add that you must go fully through the banks complaints procedure before approaching the Ombudsman.
 
Hey, thanks for the replies so far.

I don't know if this is enough detail for you to get a clearer picture of what happened or not but I'll give it a shot.

My parents increased their mortgage 5 years ago to allow them to purchase another property. A portion of the new mortgage amount was interest only for a period of 12 months (I think-I'll try check later) and naturally was due to revert to normal payments after that period.

The mortgage payments kept going out of the bank account every 2 weeks and I gather that my father never thought about the increase that would have been due seeing as how it never came. I suppose as he never got a letter from the bank (AIB btw) reminding him that his payments were due to increase it just slipped his mind. I know that some people might say that that's ridiculous but I kind of see how it could happen.

Notification came in the form of a letter in May of this year that the error in calculating the interest had occurred and that there was an extra €29,000 due. And the repayment options been given are the ones detailed below.
 
Sorry doesn't make a lot of sense.

Was the wrong rate of interest applied?

Or was the wrong repayment calculated?


If they charged the right interest but just didn't make it a repayment mortgage, then you should ask them to capitalize the arrears and take them over the remainder of the mortgage. The lender is not losing out.
 
Sorry Brendan, the portion of the mortgage that was supposed to be interest only for a fixed period never changed to a situation where the capital was being paid as well as interest. Does that make sense? I'm probably still explaining it all wrong.
 
OK, that makes a bit more sense.

Your parents were not overcharged.

They just have not paid the agreed repayments.

The balance is correct and they still owe it.

I really don't know what the bank means by an interest-free loan though.

If they are offering that, take it.

Brendan
 
bsci, what you've described now doesn't seem to match a letter telling your parents that it was an interest-calculation error.

You seem to be saying that your parents should have had interest-only for 12 months but the bank have left them on interest-only for 5 years so no capital payments have been made for 4 years which should have had capital repayments. If this is the case, then as Brendan says, no-one has been overcharged or underpaid - the only consequence is that your parents repayments are 4 years behind schedule.

How long was the mortgage term? If it was a typical 20+ years, I would have thought the repayments wouldn't increase a whole lot to catch up the extra capital payments that need to be made (and maybe the bank is offering to let the 29K backlog capital be interest only until it is paid off).

But if the bank's letter mentions errors of interest calculation, then I think there is another issue than being left interest-only for an extra 4 years (which isn't a calculation error, it's an administrative one) - can you give us an idea of the amount of the top-up and the mortgage term?
 
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